Irish pushback strategy - we get mail | 305 comments (305 topical, 0 editorial, 0 hidden)

Re: Irish pushback strategy - we get mail (4.00 / 3)

Neoliberalism it was, low tax - no regulation - beggar your neighbour.

So, no cafeteria neo-liberalism allowed? If Ireland takes one bite of that apple they have to eat the whole apple, seeds and all?

Ireland opted to follow that part of the neo-lib agenda that suited it best. Beggar thy neighbor tax policies are de rigueur between the states in the USA and Ireland correctly saw this as a likely option to attract industries. If this was unacceptable it should have been required to be undone before the EMU proceeded to completion.

The real estate bubble in Ireland flowed from neo-lib ideology and practice and its replication in Ireland was cheered as an example of the benefits of this ideology and practice -- until it blew up. In these circumstances it seems entirely appropriate that the Irish state should seek to protect those social services that will allow counter-cyclical spending to alleviate suffering and prevent a debt-deflation economic death spiral.

At the time the EMU process was started the EU and Germany was characterized by rather generous social programs. The neo-liberal agenda has been largely to dismantle this system in the name of competitiveness but with the result of reducing the share of produced wealth going to workers and retirees as wages, benefits and social services.

The terms of the EMU/IMF settlement smack of vindictive opportunism by Germany and the ECB to punish Ireland for clinging to the low tax policy that has provided it with industry and to force Ireland to drastically cut social spending regardless of the human cost. It would be one thing if that policy might work. But that seems to have a vanishingly low probability of happening.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 12:11:42 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (4.00 / 2)

I have markedly less sympathy for the Irish "tax competition" strategy than you appear to have. But it is rather rich to hear from a German that the Irish are collectively responsible for their irresponsible macroeconomic policy... when Germany has practised the even more irresponsible macroeconomic policy of wage competition.

A country that passed Hartz IV really has no business whatsoever lecturing others on macroeconomic policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 12:45:47 AM EST
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Re: Irish pushback strategy - we get mail (none / 1)

I am not a country. But that fits to your nationalist policy approach. It is also fine to see that you and your fellow travelers are full throated defenders of irish neoliberalism.

(Actually, unit labour cost in Germany are still higher then in most western european countries)

And whatever exactly helped Germany to master this crisis - neoliberalism it was not.

by IM on Sun Feb 6th, 2011 at 11:54:18 AM EST
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Re: Irish pushback strategy - we get mail (4.00 / 2)

I think Jake's "you" referred to my comment, and I should clarify that I despise tax arbitrage in all of its forms. I was not so much defending Ireland's approach to attracting industry as pointing out that there is no reason they have to adopt more of the neo-lib agenda just because they adopted this part. I would favor a gradual increase in corporate taxes on multi-nationals doing business in Ireland, up to just below the point where the advantage is eliminated.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 03:28:49 PM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 1)

I am not saying they have to adopt even more of the neo-liberal agenda. A roll-back is necessary. They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.

by IM on Sun Feb 6th, 2011 at 03:46:27 PM EST
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Re: Irish pushback strategy - we get mail (4.00 / 2)

Increasing income tax rates on top earners would likely be a good move. I don't know the specifics of the Irish tax structure, but I doubt that it taxes the wealthy and their estates particularly onerously.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 04:27:15 PM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 1)

They have increased taxes at the top a bit, but, anecdotally, a lot of the top earners are in pretty precarious positions now anyway - their incomes are down substantially (my household is down a third, for example) if they're employed or professionals and they're probably carrying investment loans which are becoming pretty onerous (not so much my household, we have a low risk tolerance).

In the short term squeezing too much will kill the golden goose - and increase the stress on the banking system too. Isn't life grand?

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 09:51:06 AM EST
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Re: Irish pushback strategy - we get mail (4.00 / 5)

They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.

In the first place, that is not what is being pushed for under the banner of Austerity^TM. If you believe that forcing Ireland to honour its debts will result in rollbacks of their neoliberal policies, then you are living in a fantasy world. Pressuring Ireland to honour their debts will provide an excuse for neoliberals - in Berlin, in Bruxelles and in Dublin - to push for wage suppression, dismantling of the pension system, destruction of unemployment protection and collective bargaining and all the other bullshit "reforms" that always get pushed whenever there is a "debt crisis" and "budgets need to be balanced."

Arguing that Ireland should pay its debts by raising taxes on the rich is, in terms of realpolitik, as delusional as asking that the Irish turn down Lisbon in order to permit a grassroots drafting process for the next treaty. It's not gonna happen, and by pushing for it you are aiding and abetting the neoliberals, for whom insisting on debt repayment is a precondition for engaging in "structural adjustment programmes."

In the second place, no Ireland cannot balance their budget by taxing the rich, because Ireland is in the middle of a serious industrial depression, in case you didn't notice. Which means that they can't balance their budget, full stop. They can't balance their budget by taxing the rich. They can't balance their budget by taxing the poor. They can't balance their budget by cutting benefits. They can't balance their budget by taxing corporations. Because they can't balance their budget. Demanding that they balance their budget is buying into the neoliberal idea that governments need to run balanced budgets. They don't. In fact, they shouldn't. Not in recessions, and not cycle-averaged.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 07:36:03 PM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 0)

I don' buy the theory that Ireland can't rise taxes. That is neoliberal clap-trap. FDR did rise income taxes during the great depression. And what ever the situation in Ireland is, it is not a industrial depression. Manufacturing is least troubled sector in Ireland.

I don't assume Ireland will always be depressed. Budgets can and should be balanced over the cycle. Your novel theory: never balance the budget and default regularly can not work.

by IM on Mon Feb 7th, 2011 at 09:33:31 AM EST
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Re: Irish pushback strategy - we get mail (4.00 / 3)

Your plan is raising taxes to pay off foreign debts in the depths of a recession? Raising taxes - my taxes, I'll point out - to spend on stimulus I might buy. To pay off private debts that should never have been made public? Not so much.

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 09:40:23 AM EST
[ Parent ]

sigh (none / 1)

You can't balance the sovereign budget in the middle of a depression. If you try, the only result will be crashing your GDP to a level where the tax base erodes sufficiently to restore the sovereign deficit required for the private sector to deleverage.

Obviously, you can raise taxes on the rich, even during a depression. It's actually not a bad time to do it, provided that you have a big enough soapbox to shock doctrine it through. But it won't balance your budget. It will only enable you to make sure that the deficit goes towards building useful infrastructure rather than lining the pockets of your oligarchs. For the purpose of real economic planning, that's a great thing. For the purpose of paying German bondholders, whose bonds mature in less than three years, it doesn't really matter one way or the other.

And this is all Macro 202 (actually, if you look closely at the accounting identities, it's Macro 101 - but most textbooks not to emphasise it). Even the Chica(r)go cultists get this, although they like to pretend otherwise.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 09:52:56 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 0)

Irish taxes were between 33% and 37% prior to the crisis. That I think is to low. It should be possible to raise this level to 40-45%.

Or you can cut the level of expenditures to 33-37%. But I don't think you can run a real welfare state on this.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

As for paying back - why? States are long lived. If Ireland wants to keep the debt another fifty years, why not. Economic growth will then make the debt more bearable.

But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid. More I do not assert.

by IM on Mon Feb 7th, 2011 at 10:27:07 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (4.00 / 3)

I don't assume that Ireland will in three or five or ten years still in the middle of a depression

I wouldn't be surprised if it was, given that we're meant to be running massive austerity budgets for all of that period.

GNP is going to shrink again this year and probably next year - any recovery will be drowned at birth by further austerity.

Sure, tax rates here are too low, sort of. Effective tax rates may be quite high for the poor because of how VAT and charges for government services are structured. I've been calling for increases in Irish taxes for years.

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:42:59 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (4.00 / 2)

But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid.

No. It can't.

Why is this so hard to grasp? It's Keynes For Kindergardeners: You cannot run a budget surplus during a serious depression. Not enough surplus to pay interest, not enough surplus to amortise, no surplus at all. Full stop.

So Ireland's bonds will have to be carried for the next five to ten years (more like fifteen if Germany insists on practising Austerity) without the bondholders seeing a single eurocent. Now, that would not in and of itself be a problem, if the ECB were doing its fucking job and printing money on demand. But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

If the ECB had been doing its job and printing unlimited amounts of money for Ireland, then your proposal would have been something worth talking about. It would still have been odious, because there is no good reason the Irish taxpayer should bail out the Irish banks, so the part of the debt that corresponds to the bailout should be defaulted upon, at the very least. But it would have been within the realm of the possible.

With the ECB practising Austrian economics, however, your plan of "carry now, pay later" is delusional. It can't happen until Weber, Trichet and Stark are fired and replaced with people who understand the real opportunities and constraints that a fiat currency represents. So unless you have a proposal for how to get Messrs. Trichet, Weber and Stark fired and replaced with Keynesian economists that does not involve defaulting on everything with a business address in Frankfurt, I don't see how your plan is anything but a pipe dream.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 01:11:42 PM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 0)

Of course your plan is even more of pipe dream.

But on the ECB: There are 16 member states of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

by IM on Tue Feb 8th, 2011 at 10:11:01 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 1)

Of course your plan is even more of pipe dream.

Oh, I don't expect the extortion to actually change ECB policy.

But when they default, that will cease to be Ireland's problem, and the Germans who get burned can take it up with Messrs. Stark and Weber, who bear the lion's share of the blame for the ECB's stupidity.

But on the ECB: There are 16 member states of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

Oh, but that is the whole point of this strategy: Pressure the €-zone countries into sending loose-money governors to the ECB.

That said, it really is undignified seeing you try to fob the blame off on someone else - anybody else - other than the last twenty years of German policymakers. The inflation mandate was a German idea - in fact, a German condition for joining the € in the first place. So was the General Stupidity Pact, by the way. And there is no doubt that German policy positions wield a disproportionate influence in the ECB. For that, you only have to look at its actual interest rate policy over the ten years of its existence as a functioning central bank: They have consistently favoured German macroeconomic policy at the expense of the interests of peripheral countries.

When you follow the money, you end up in Frankfurt.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 9th, 2011 at 01:13:30 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 0)

Tell that the Weber. Shouldn't his resignation put a little dent in your "the germans runs everything" conspiracy?

by IM on Sat Feb 12th, 2011 at 05:41:28 PM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 0)

Merkel runs Germany.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sat Feb 12th, 2011 at 09:31:43 PM EST
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Re: Irish pushback strategy - we get mail (none / 0)

I thought the Bundesbank?

by IM on Sun Feb 13th, 2011 at 07:54:44 AM EST
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Re: Irish pushback strategy - we get mail (none / 1)

Weber's ouster is good news. Now we just need to get rid of Stark, and we'll have a shot at getting somebody sane in office.

But it doesn't change the fact that the ECB has been consistently favouring the surplus countries - of which Germany is the most prominent and powerful - and has for far too long been pandering to German inflation neuroses.

Incidentally, you should be happy about this outcome. Weber was the most significant obstacle to Ireland's debt being repaid in full, due to his insane insistence that the ECB shouldn't carry it at below market rates until the crisis was over.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 13th, 2011 at 12:31:49 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 0)

Actually, all 27 EU member states. See the ECB General Council page.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Feb 9th, 2011 at 02:24:43 AM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (none / 1)

But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

But that is much too generous an assessment of the mind set of the ECB. Rather than laboring under delusions, they are much more likely acutely aware of the ire they would recieve, the hit their financial futures would take, and the general opprobrium they would endure were they to deny their private sector patrons the seigniorage to which they feel entitled. They are probably at least aware of the arguments that they can create money without seigniorage, but also aware that this is like a third rail for central bankers in a neoliberal economic environment.

It would be very interesting for Trichet to be asked by, say an MEP, why he has not considered issuing money without siegniorage to help the recovery of banks and central banks that threaten the stability of the entire system. The answer, if truthfully given, would be that so doing would undo too much of the narrative that underlies existing policy and would harm the beneficiaries of the neoliberal policies -- the very wealthy.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Feb 8th, 2011 at 02:46:29 PM EST
[ Parent ]

Re: Irish pushback strategy - we get mail (4.00 / 2)

And whatever exactly helped Germany to master this crisis - neoliberalism it was not.

On this I believe we can agree. One thing that has helped Germany for at least the last decade has been that they have been able to set important aspects of macro policy to suit their perceived needs regardless of the consequences to other countries. The peripheral nations have been out of phase with Germany in their interest rate needs and are receiving ever decreasing sympathy for their plight.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 03:37:12 PM EST
[ Parent ]

Irish pushback strategy - we get mail | 305 comments (305 topical, 0 editorial, 0 hidden)

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